From Russ Fox, E.A., of Clayton Financial and Tax of Las Vegas, Nevada. All of the items below are for information only and are not meant as tax advice. Please consult your own tax advisor to see how each item impacts your own situation.

Posts Tagged ‘HighSpeedRail’

Yesterday a client emailed me and asked if I was planning on moving back to California. The answer is easy: no. I could make it stronger, but I’ll let others help with that.

First, Dan Walters writes about what will happen if Governor Brown’s tax increase passes. I could just quote Alan Greenspan: “Whatever you tax, you get less of.” Mr. Walters cites the case of Gilbert Hyatt (a case I’ve written about extensively) as an example of what will likely occur if Proposition 30 passes.

Mr. Walters thinks that the verdict in the Hyatt appeal will influence this. I disagree, though; if Proposition 30 passes, the exodus will increase. It’s even easier today than it was in the 1990s to live anywhere in the U.S. and run a business. My business partner is in Maryland, yet through the magic of computers, Skype, FedEx, and the telephone we’re able to run our business very efficiently. It really doesn’t matter where you reside these days, be it Los Angeles, Las Vegas, Denver, or Phoenix.

There are some catches Californians who plan on moving need to be aware of. If you have a business entity, you probably want to reform it in your new state. That way you can escape California business taxation, too. (Note that there are exceptions to this, and this definitely should be discussed with your tax professional.)

The data also reveal the motives that drive individuals and businesses to leave California. One of these, of course, is work. States with low unemployment rates, such as Texas, are drawing people from California, whose rate is above the national average. Taxation also appears to be a factor, especially as it contributes to the business climate and, in turn, jobs. Most of the destination states favored by Californians have lower taxes. States that have gained the most at California’s expense are rated as having better business climates. The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.

The California Farm Bureau Federation is upset with the high-speed rail because it would urbanize prime farmland. I’m upset with the plan because it’s a colossal waste of money. The goal of the high-speed rail project is to connect the Los Angeles and San Francisco areas by trains that would take 2:40 to run between the metropolitan areas. The high speed rail’s website lauds that its sustainable trains would help the environment.

Today, you can fly between Los Angeles and San Francisco in just over an hour. Does anyone really think that people are going to spend an extra hour and thirty minutes to take the train? As far as electricity being cleaner than a jet, that’s true…until you realize that you have to generate the electricity. That means a fossil fuel (coal, oil, natural gas), hydroelectric power, or nuclear power. The difference between “clean” electricity and a jet is that with the electricity you’re one step down from where the “green” nature goes away.

In any case, the big problem is economics. High speed rail may make sense to connect two densely packed metropolitan areas (such as from Boston to Washington, D.C.). But without massive subsidies this program–estimated to cost upwards of $67 billion–is just more money down the drain in California.

How many individuals want to ride high-speed rail through California’s Central Valley? That’s not an academic question, as that will be the first leg of the line built by the California High-Speed Authority. The line will run from Shafter (population 17,000) to Madera (population 61,000): just north of Bakersfield to just south of Merced.

The first major city north of Bakersfield is Visalia, with a population just above 124,000. The line will then pass through Fresno (510,000) before reaching Madera. Just how many of those people need to get from one end of the Central Valley to the other?

Let’s be real: This is a colossal waste of money. And it’s now over budget by somewhere between $2.6 billion to $6.8 billion.

Yes, I realize the goal of the line is to connect the Bay Area with the Los Angeles Basin. While the news article I linked to notes a cost of $43 billion, the true cost will undoubtedly be higher. I’m guessing that the eventual cost per rider will be about $1 million. It currently costs around $100 each way to fly that route. Given where our government is today, wouldn’t a better use of the $43 billion (or $143 billion) be paying down all of our government’s debt and not building a white elephant?

I also realize that California voters approved this measure. This is one time the legislature should step up, and let the voters know that a mistake was made. Return the federal funds to Washington, and stop the project. White elephants like this is why the government is in the mess it’s in.